Apollo portfolio companies face higher borrowing costs amid ‘sponsor premium’
Companies backed by Apollo Global Management are paying approximately one percentage point more to borrow in the leveraged loan market than those backed by other private equity sponsors. This "sponsor premium" is attributed to lenders’ concerns about Apollo’s reputation for aggressive creditor negotiations and balance-sheet restructurings, according to academic research by Vince Buccola and Greg Nini.
The Financial Times has reported on new academic research indicating that companies backed by Apollo Global Management are incurring higher borrowing costs in the leveraged loan market. The study suggests these portfolio companies pay approximately one percentage point more than those supported by other private equity sponsors. This finding points to what researchers term a "sponsor premium" associated with Apollo, reflecting lenders' perceived concerns regarding the firm's approach to creditor negotiations and balance-sheet restructurings. The research was conducted by Vince Buccola of the University of Chicago and Greg Nini of Drexel University.
The academic paper analyzed nearly 2,000 leveraged loans issued over a period spanning from 2016 to 2025. The authors determined that while factors such as borrower leverage and credit quality explained 79% of the variance in loan yields, incorporating sponsor reputation increased the model's explanatory power to 84%. The identified one percentage point premium is considered significant within the leveraged loan market, particularly when compared to the typical loan yield of slightly above 7% observed in the study's sample. This premium is also described as comparable to the yield gap between B+ and B- rated loans.
Apollo's historical involvement in robust creditor negotiations, such as the 2015 Caesars Entertainment bankruptcy, has contributed to its established reputation. This particular restructuring entailed disputes with lenders and investors, including firms like Appaloosa Management, Elliott Management, and Oaktree Capital Management. Ultimately, Apollo reached substantial settlements with Caesars' lenders and bondholders following litigation related to the restructuring.
Despite this history, Apollo has reportedly made efforts to enhance its relationships with creditors, including direct engagement with asset managers. The firm maintains that its actions are aligned with contractual rights defined in financing documents, aimed at maximizing returns for its investors. The research also highlighted that Apollo-backed businesses generally do not exhibit unusually high leverage levels or feature particularly lender-unfriendly documentation, which makes the observed sponsor effect noteworthy.
Apollo has challenged the study's conclusions, asserting that its portfolio companies secure loans at competitive rates and benefit from broad support within the lending community. The firm stated that while coverage of a single transaction from over a decade ago might influence an algorithm and potentially lead to a flawed study, it does not alter the facts regarding its portfolio companies' competitive borrowing terms and strong lender relationships. Apollo manages approximately $200 billion in private equity assets and an additional $800 billion in credit assets, positioning it as both a significant borrower-side sponsor and a participant in the lending market.
This research suggests that sponsor reputation, specifically regarding perceived aggressiveness in creditor negotiations, can directly impact the cost of capital for portfolio companies, even when fundamental credit metrics are comparable. It signals a potential increase in scrutiny from lenders on the historical behavior and negotiation tactics of private equity sponsors when evaluating new lending opportunities, potentially influencing deal structuring and syndicate formation across the private debt landscape.